Three stocks to watch as Budget 2026 may roll out ₹23,000 crore incentives for capital goods manufacturing

The schemes are currently under preparation and could be announced in the upcoming budget.

According to the report, the proposed incentives are likely to be split across two key segments: construction equipment and the automobile value chain, as part of efforts to strengthen the domestic capital goods ecosystem and reduce import reliance.

Construction equipment segment

• A ₹14,000-16,000 crore incentive programme is being planned for the construction equipment sector.

• The focus will be on indigenizing high-end machinery such as tunnel boring machines and cranes, where import dependence remains high.

• At present, nearly 50% of the sector’s components by value are imported, mainly from China, Japan, South Korea, and Germany.

• The government is now emphasising local production of critical components, including hydraulics, undercarriages, electronic control units, sensors, and telematics.

Automobile value chain segment

• A separate ₹7,000 crore scheme is proposed to develop resilient global value chains for the automobile industry.

• The incentives will support local manufacturing of advanced driver assistance systems (ADAS), 360-degree cameras, and sensors.

• The scheme is expected to encourage production with at least 50% domestic value addition, potentially creating export opportunities.

• Subsidies for procuring capital goods such as moulds and power tools, which are critical for auto component manufacturing, are also likely to be included.

• Against this backdrop of potential policy support, here are three stocks to add to your watchlist.

BEML Ltd

BEML operates in three business segments—mining and construction, defence and aerospace and rail and metro, which is specific to product mix.

The company has a strong product portfolio through its Earth Movers Division, which manufactures a wide range of heavy equipment, including bulldozers, hydraulic excavators, wheel loaders, hydraulic cranes, electric rope shovels, and more.

Its hydraulic and powerline division produces transmissions, axles, hydraulic aggregates, etc.

Going forward, BEML’s strategic intent to enter the tunnel boring machine (TBM) space adds a new growth lever. As per the EOI dated 31 July 2025, the company is seeking partnerships with globally reputed design consultancy firms for TBMs with diameters ranging from 6 metres to 16.5 metres, backed by a proven execution track record.

This move positions BEML to tap rising demand from metro rail, road tunnels, and underground infrastructure projects, while leveraging its nationwide after-sales service network.

With BEML's presence in hydraulics, hydraulic cranes, and heavy equipment, along with its intent to enter tunnel boring machines, makes it a stock to watch.

On the financial front, over the past five years the company’s revenue has seen a growth of 5.9%, meanwhile, net profit grew at a CAGR of 35.7%.

The company’s five-year average ROE and ROCE stand at 7.2% and 12.7%.

CG Power and Industrial Solutions Ltd

CG Power and Industrial Solutions, a major engineering company that is involved in the development and manufacturing of control solutions and power management components used in various industrial applications, including railway transportation and potentially future automotive electronics through a recent semiconductor venture.

CG Power manufactures control solutions, such as the TCN VCU, designed to manage and coordinate all key locomotive subsystems. These are essential Electronic Control Units (ECUs) for modern electric locomotives, ensuring multi-unit operation, diagnostics, and subsystem integration.

The company provides automatic electrical control panels designed to maintain a consistent and quality power supply for industrial equipment, helping to manage voltage variations and power factors automatically, rather than manually.

CG Power offers various drives and automation control devices, including variable frequency drives, motor protection relays, and feeder remote terminal units, which are forms of control electronics used in industrial settings.

With the government emphasising local production of critical components such as electronic control units, sensors and telematics, CG Power’s deep capabilities in ECU design, control systems, and power electronics make it a stock to watch.

On the financial front, over the past five years, the company’s revenue has seen a growth of 14.2%.

The company’s five-year average ROE and ROCE stand at 32.7% and 85.2%.

Larsen and Toubro Ltd

The company has a diverse presence in engineering, construction, manufacturing, technology, and services. It's one of the top five construction companies in India.

L&T has deep expertise in complex infrastructure and underground construction, including the use of advanced materials such as Steel Fibre Reinforced Concrete (SFRC) with higher-grade concrete in Tunnel Boring Machine (TBM) applications.

Further, through its subsidiary, LTCEL provides solutions to the construction industry through mechanization and automation, leveraging its expertise in hydraulics, mechanical, electrical, and electronics engineering.

Further, the company’s construction and mining business (CMB) division is engaged in the distribution and after-sales support of hydraulic excavators and dump trucks manufactured by Komatsu India, along with other global Komatsu mining and construction equipment.

With a proposed ₹14,000-16,000 crore incentive for the construction equipment sector and a clear policy thrust on indigenising high-end machinery such as TBMs and hydraulics, L&T is a stock to watch.

On the financial front, over the past five years the company’s revenue has seen a growth of 12%, meanwhile, net profit grew at a CAGR of 11.7%.

The company’s five-year average ROE and ROCE stand at 13.9% and 18.2%.

Conclusion

According to India Brand Equity Foundation (IBEF), the Indian electrical equipment market is set for strong expansion, with incremental growth estimated at ₹6,44,533 crore ($76.24 billion) at a CAGR of 14.3% during FY24-FY28.

Alongside this, the Indian construction equipment market, which stood at $7.2 billion in FY23, is projected by the IBEF to grow at a CAGR of around 15% over the next five years, supported by rising infrastructure investments and mechanisation.

Further, if the government rolls out incentive packages worth up to ₹23,000 crore in the Union Budget 2026 to boost domestic manufacturing of high-value capital goods and reduce import dependence, companies operating in these segments are set to get a big boost.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com.